Tuesday, August 28, 2007

U.S. Denies Imminent Recession


WASHINGTON - Problems in the U.S. subprime mortgage market are unlikely to push the U.S. economy into a recession over the next 12 months, the top economist for a leading U.S. business group said on Tuesday.

"It's clear over the last year-and-a-half the economy has downshifted and things are not doing quite as well. But having said (that), I don't think we're on the precipice of a recession," said Martin Regalia, vice president for economic policy at the U.S. Chamber of Commerce.

Regalia said that, in his opinion, problems caused by bad loans made in the subprime market were not spreading to broader housing or overall debt markets.

"I think given the actions of the Fed -- what they've done so far and what they're likely to do in the future -- we're not going to see that broad-based contagion and therefore we're going to see the economy weather that storm," Regalia told reporters in a briefing.

Earlier this month, the Federal Reserve cut the discount rate at which it lends to qualifying banks by a half percentage point to 5.75 percent amid worry that problems in the subprime mortgage market were shrinking credit market liquidity.

Regalia said he expected the Federal Reserve to cut interest rates at its regular monthly meetings in September and October, but concerns about inflation would prevent the Fed from embarking on a longer-term easing campaign.

He said mortgage market problems will help trim U.S. economic growth to an annual rate of around 2 percent by the fourth quarter from about 4 percent in the second quarter.

"We're not going to get back to the 3-plus percentage growth rate, I don't think, until this housing issue is behind us, and that's likely to be the beginning of next year to the middle of next year," Regalia said.

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